Where Have Investors Gone?

As Pete Seeger might have written it and the Kingston Trio might have sung it in the sixties, 'Where have stock investors gone, long time passing? Gone to bond funds every one, long time ago.'

Will the last lines to that great folk song also come to be part of the picture? "When will they ever learn? When will they ever learn?"

Kingston

I bring that up given that investors are still largely missing from the bull market. And as I wrote in my daily blog a few weeks ago, statistics show that most investors who lose money over the long-term do so because they come to be fearful after suffering big losses in a bear market, swear off "the damned shop for good", and don't come to be curious again until the next bull shop has been underway for a long time. They then pile in with abandon in an effort to catch up after the bull shop has just about run its course, and the next bear shop is due. The cycle then repeats.

We seem to be at a point now where investors have sworn off "the damned shop for good". As one participant in a website seminar put it this week, "Most habitancy I know in their 50s and 60s are done with the shop - period. It could go up someone else 300%. They don't care. With bonds at least we can sleep at night."

Will they be right this time?

In the past they have stuck with that understanding for quite some time, often some years, until they learn how much their friends and neighbors have been manufacture in the stock shop again.

Investors continued to pull money out of the stock shop well after the 1973-74 bear shop had ended, after the 1987 crash, after the 1990 bear market, and indubitably after the 2000-2002 bear market. As money-flow study firm Trim Tabs reported, "After the 1987 crash investors pulled billion out of equity mutual funds, and then made the opposite mistake of putting billion back into the stock shop only a year before the 1990 bear market."

The pattern was never more clear than in the new bear market, and new bull market. Most investors, believing themselves to be buy and hold investors, also held on most of the way down in the most recent bear shop of 2007-2009. A narrative estimate of money flowed out of equity mutual funds and into bond funds not near the top in 2007, but in the middle of November, 2008 and the end of the bear shop in early March, 2009. In fact, the panic to get out of stocks and into bonds during the final four months of the long bear shop created an unusual spike-up bubble in bond prices in late 2008 (which then burst, with bond prices tumbling 19% last spring, and still not recovered).

The exit from the stock shop continued even as the stock shop rally off the March, 2009 low turned into a new bull market.

As Dan Sullivan of The Chartist newsletter noted in a new issue, "Between July 31 and November 30, 2009 investors pulled billion out of domestic stock funds, and pumped 2 billion into dutible bond funds. From November 30 through the end of the year they pulled someone else billion out of domestic stock funds while putting billion into bonds."

As Sullivan continues, "Obviously the social is still not aboard this bull market. Investors on the sidelines view the continuing rally with great suspicion, wondering when the next shoe will drop, when the bear shop will reassert itself. However, they will come back, as they always have."

The absence of social investors has not prevented a strong bull market, but rising on very low volume, as financial publications have been noting. On average not much more than one billion shares have been trading daily on the Nyse for some months, compared to close to two billion in former years, and as many as three billion daily in some periods when investors decree it's time to indubitably pile in.

So the beneficiaries of the new bull shop have primarily been expert traders, and expert investors at hedge funds, banks and other institutions. In fact, banks have been reporting large profits due primarily to their trading and investments, even as their loan losses pile up.

There is a ton of money pulled out of the market, on the sidelines in money shop funds and bonds. It was hoped that the new year would see volume pick up, with some of that sideline money arrival in. But so far it hasn't happened.

Meanwhile the bull shop has continued in its stealth mode of slowly creeping higher on very low volume, just adequate negative days to keep wary investors wary, participants still slowly manufacture gains even as sideline money doesn't budge.

Already the S&P 500 has gained a whopping 65% since its bear shop low last year. Will it be someone else example for history of investors missing out on the biggest part of a bull market, not entering until it's almost time for the next bear market?

They say that history does not repeat but it indubitably seems to be doing so again.

Where Have Investors Gone?